Sen. Curt Friesen

District 34

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The legislature made good progress last week advancing a number of bills from both general and select files.

The “Choose Life” license plate bill (LB46) that has consumed hours of debate time over the past few weeks passed on final reading with a vote of 38-0. The bill was signed into law on April 5th by Gov. Pete Ricketts during a special signing ceremony.

The Revenue Committee completed work on its tax reform package and sent two bills (LB481 and LB640) to the floor. It is likely to be several weeks before the bills are debated.

I think both bills will make positive and much needed changes to the tax structure in the state. This week I am focusing on LB640 which deals with property taxes and school funding and next week I will take up LB481 which deals with a range of tax issues including income tax rates, how property taxes are assessed, and changes to the state’s Earned Income Tax Credit.

LB640 was introduced by North Platte Sen. Mike Groene and I selected it as my personal priority bill. The intent of LB640 is to reduce the amount of property taxes going to school funding potentially reducing property tax bills, especially in areas where the property tax base is mostly agricultural land.

It is an understatement to say that the way we figure school funding in this state is complicated, confusing and hard to understand; trying to explain LB640 is much the same. If implemented in its current form the bill would make three major changes: capping the amount of property taxes used to fund schools; lowering the maximum school district levy; and redirecting money from the Property Tax Credit Cash Fund to make up the difference and provide property tax relief.

Property taxes have always been the primary source of funding for Nebraska’s schools. Today property taxes make up between 32 percent and 80 percent of total revenue depending on the school district. The goal is to eventually cap the property tax portion at 40 percent.

LB640 takes a step in that direction and would place a 55 percent cap on the amount that property taxes contribute to school funding. The difference between the total amount of revenue now collected and the 55 percent cap, the “property tax gap,” will be split between the state and individual school districts.

The state will contribute 75 percent of the amount needed to close the gap with money taken from the Property Tax Credit Cash Fund. If the balance in the Property Tax Credit Cash Fund is less than the amount needed for school district relief aid, individual school district aid will be reduced proportionately.

School districts receiving aid must reduce their spending by an amount equal to 25 percent of the property tax gap unless the school board, after holding a public hearing, overrides the reduction by a two-thirds majority vote. The 159 unequalized districts along with 26 districts that receive minimal equalization will see the biggest impacts.

Next, the bill would lower the maximum school district property tax levy from $1.05 per $100 of property value to $.987 per $100 of property value which in turn lowers the local effort rate in the TEEOSA formula. The difference will be offset with money from the Property Tax Credit Cash Fund paid in the form of property tax relief aid to citizens in equalized districts.

The Property Tax Credit Cash Fund was established in 2007 to provide property tax relief to real property owners across the state in the form of a property tax credit and today it contains $221 million. This bill will significantly impact the fund because the money to pay for LB640 will come from redirection of those dollars.

If LB640 is implemented both urban and rural areas will feel the effects. Rural areas will pay slightly less toward school funding and receive increased state aid to make up the difference. Urban areas will receive less in property tax credits. While it is easy to frame changes like this in terms of winners and losers if you think about the system we have now we already have winners and losers. LB640 is not intended to benefit one area at the expense of the other, it is intended to make the system fairer for everybody while still adequately funding our public schools.

Please feel free to contact me and my staff about your legislative concerns or other issues you would like to discuss. My email address is cfriesen@leg.ne.gov and our telephone number is 402-471-2630.